A Keynesian Challenge: Prove Deflation is Bad For ME!

'Mish' Shedlock and Gordon T Long discuss a number of outstanding issues in 2016 that will become Themes in 2017.

Economic Challenge to Keynesian's

Mish is quite emphatic that:

"Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them. The BIS did a study and found routine deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

It's asset bubble deflation that is damaging.

"In central banks' seriously misguided attempts to fight routine consumer price deflation, central bankers create very destructive asset bubbles that eventually collapse. When those bubble burst, and they will, it will trigger debt deflation, which is what central banks ought to fear. For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Meanwhile economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices."

Reality Check Questions

1. If price of food drops will people stop eating?

2. If the price of gasoline drops will people stop driving?

3. If price of airline tickets drop will people stop flying?

4. If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?

5. If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?

6. If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?

7. Will people delay medical procedures in expectation of falling prices?

8. If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Unresolved 2016 Problems will become 2017 Themes

SLOWING RETAIL SALES

US Y-o-Y retail sales are trending down, 8 large US chains are closing hundreds of stores, as inventories continue to grow during what we are told is a recovery. What happens to retail sales and retail commercial real estate if the US sees a recession in 2017?

US Y-O-Y RETAIL SALES CONTINUE TO FALL

LOOMING AUTO PROBLEMS

A pile-up of nearly new cars returning off lease is set to cause trouble for the US car industry and wreak havoc on used car prices and thereby pushing lease prices up.

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